Archive for 2007

The Easy Option – Example BOBJ

Foundational model of

Options Sage Submits:

 

Although many of our members have been trading for years and are highly sophisticated, this educational segment will build from the foundation levels recognizing that some of our members are relatively new to the options game and, while it's all quite simple when you know how - you do need to know how!  There is nowhere better to begin then with the "easy option" – the long call!

 

The long call option is probably the best understood of all the options because in many ways it is so analogous to stock ownership.  When we buy a stock and it rises we can sell the stock and profit. When we buy a long call and the stock rises, we can sell the call and profit too!  

 

Here at Phil's Stock World we tend (OK, not tend, almost always) to use options as leverage on positions.  While options are inherently risky, they do provide the advantage of allowing the average investor to be able to diversify his/her virtual portfolio across a large number of positions, limiting the capital at risk in each one (when applied with good money management techniques!).

 

Let's take a look a BOBJ, a stocks Phil likes for Monday.  The company has beaten estimates each of the last 4 quarters, the last by 20%, and is expected to report a strong Q4 on Tuesday (.56 vs .42 last year).  The underlying strength in Business Objects can be seen in that they have no debt and have thrown $160M of cash into the bank this year alone leaving them with $518M as of last quarter so the current p/e of 49 is deceiving on this $3.6B company.

 

 

At $38.70 they are trading well off  last year's high of $43 and 25 out of 41 analysts tracking the stock don't like it.  That plus the fact that there's been a rumor that ORCL is interested in buying them, which may have irrationally pumped up…
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Weekend Ramblings – In Progress

 

Trader Mike put up a nice video on the concept of Web 2.0 that is basic but nice to watch.  It kind of hammers home the point of what we're trying to accomplish here, a collaborative trading community that harnesses the power of our collective experience.

One thing I realize in trying to write a book is what a huge step backwards it is to have to put words on a linkless page.  I predict right now that the successful evolution of EBook devices will lead to a new Renaissance of reading and writing as the average person becomes able to convey hundreds of pages of data and concepts in a simple 12-page article that, in turn, references thousands of other pages that, in turn references thousands of others, quickly putting millions of hours of research work in the hands of anyone who should think to ask a question.

Just as the 1447 invention of the printing press did not instantly wipe out handwritten manuscripts or oral communication, Wikis and blogging are not going to immediately relace "Mainstream Media" but, over time, it is clear that IREM (Instant, Robust, Electronic Media) will force the MSM to reexamine its place in the world.

We (a group of fellow bloggers at Information Arbitrage) had an altercation recently with the Wall Street Journal over a hack peice that was written attacking Blogging, Bloggers, the "imbeciles" who read blogs and anything else that doesn't generate revenue for the WSJ (written by and assistant editor, of course).  I won't get back into it but you can read mine and others' commentary here.

 

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Tech Guru Robert X. Cringly (I always use the X because it's cool) is topping my 2015 $3,000 price target on Google by going to $4,000!  He's uncovered a covert plot by Google to accumulate all the spare bandwidth on the planet as a prelude to moving against your local service providers. 

Extrapolating BitTorrent traffic to it's logical conclusion, Cringly reasonably estimates that Google has figured out that ISPs have underestimated bandwidth needs by a factor of 30.  He concludes: "Those ISPs will be faced with the option of increasing their backbone connections by 30X, which would kill all profits, OR
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Monthly Mop-Up

 

Well, we got the new year off with a bang!

Despite a very tough 3rd and 4th week of the month and a very tough purge of many oil and builder plays that just were not working, we managed to finish the month with a 65% average gain on 144 positions closed on 18 average days held.  While this was way down from the first two weeks of the month where we averaged 100%, it's still a fairly respectable total!

Always note that that figure is based on the adjusted capital at risk at the time of closing and is not a virtual portfolio increase.  And there were indeed many adjustments made this month, we doubled down on 37 positions, obviously because they were in trouble, and the strategy worked out on half of them.  16 times, we actually lost more money after the double (which reduces the average basis by 25%) but, of the 21 times that upping our bets improved our positions, 10 were doubles or better and another 6 turned into greater than 50% gains.

Our worst plays were generally oil and builder plays, both of which whipsawed us right after an entry, meaning we had (or should have had) very small positions, which we chose to add to rather than take our 20% stops and go home.  As I said during the week, fundamentals were thrown out the window in both of those sectors and we should have been riding the waves instead of trying to fight the tide.

We picked the wrong day to enter TSO $65 puts at $1.33 (1/16) as it went up from there but we took a second round anyway (the cheapest kind of DD we have) at $1.10 but it went up and up on us until we had to finally be glad to get a nickel back (down 96%) after a huge 1/31 earnings spike.

MOT killed us on our first attempt to enter the Jan '07 $20s for $1.15 (12/14) but I still believed in it enough to take a second round for $1 but we gave up on 1/18 at .05 (down 95%) as we had called a bottom the week before and decided to move to leaps.  Thank goodness because the much larger Jan '09
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Friday Flatline

That was just fine!

Nothing bad happened, most of the Dow’s losses were minor with my own picks of MO and MSFT as 2 of the three biggest losers of the day.  BA and AA also dropped a point but no one who’s owned those shares for more than a week is complaining. 

It’s funny how the transports were able to ignore a $1.72 jump in oil.  Maybe it was because that entire $1.72 was thrown onto the boards in the last 35 minutes of trading in a blatant attempt to headline a rise of oil back to $59 into the weekend.  Nobody thinks this is real anymore, now the oil traders are just fooling themselves - and what a pit of fools they look like, swapping 387M barrels between March and May while only actually paring 7M barrels off the total order.

Our week ending crude contract orders were:

  • March Open: 353K (-33K) $59.02 (+$4.98) 
    • 282K contracts traded today.
  • April Open: 135K (+22K) $59.73 (+$4.92)
    • 79K contracts traded today. 
  • May Open: 59K (+4K) $60.48 (+$4.99)
    • 24K contracts traded today.
  • June Open: 97K (+1) $61.11 (+$4.99)
    • 15K  contracts traded today.

You can see the level of farce the have attained when you look down the list of the NYMEX contract closures and see massive discrepancies between the price they forced it to and the price barrels actually trade at.  For example, the last trade on the October contract was $61.26 (8K traded) but they jacked up the "ask" price to $63.02.  This pattern is repeated in most of the longer months where the gains are paper only with no actual trading interest in paying these prices. 

Why is this kind
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Friday Virtual Portfolio Moves

Posted February 2, 2007 at 9:43 am | Permalink (Edit)

FDX flying with an upgrade.

  • I’m putting a stop in on 1/2 the July $115s at $7 with a .40 trail
    • that was a big bet to make up for the loss on the July $120s
    • (I rolled them out into the lower call on the 30th) and the mission is accomplished!
Posted February 2, 2007 at 9:51 am | Permalink (Edit)
  • Taking GOOG Mar $470 puts for $12 to protect my calls. 
    • Will sell Febs if it starts to come back
    • Obviously, as soon as I can get more than $12 for the $480 puts I’m going to set a tight stop!

Posted February 2, 2007 at 10:23 am | Permalink (Edit)
Copper broke $250 – watch for a dump in gold!
  • BAB – DD on Mar $100 puts at .65
  • taking Mar $105 puts for $1.55
    • this is a hedge on high oil posiition for me, plus I think it should drop in its own right.
Posted February 2, 2007 at 10:46 am | Permalink (Edit)
  • ISE – Jan $45s are $7.30
  • sell the Feb $45s on good news (or the $40s on bad news!)
Posted February 2, 2007 at 10:46 am | Permalink (Edit)
  • RIMM – taking out 1/2 my positon by buying out caller at $3.30, selling my calls at $7.20
Posted February 2, 2007 at 11:38 am | Permalink (Edit)
  • Out of the QQQQ $45s for .25
Posted February 2, 2007 at 12:50 pm | Permalink (Edit)
  • GME Mar $55s are $1.90
Posted February 2, 2007 at 1:28 pm | Permalink (Edit)
  • LVS Jan $110 puts for $17
  • sell the Feb $105 puts for $4.30
Posted February 2, 2007 at 1:46 pm | Permalink (Edit)
  • Had to add to my EOG $65 puts at .45
Posted February 2, 2007 at 2:22 pm | Permalink (Edit)
  • WENNF WEN $30 puts, just got them for .10 on awful earnings
    • craps roll
Posted February 2, 2007 at 2:55 pm | Permalink (Edit)
  • Half out of WEN puts at .20 of course, stop on rest at .10
Posted February 2, 2007 at 2:57 pm | Permalink (Edit)
  • WEN $30 puts  - I lost interest and took .15 to close all
    • too many buyers down there.

Posted February 2, 2007 at 3:41 pm | Permalink (Edit)

  • CVX Mar $70 puts at .55
  • EOG Feb $65 puts at .45

 





Groundhog Day!

It’s Groundhog Day!

While the movie "Groundhog Day" is one of my all-time favorite films our foreign readers would do well to remember that we live in a country where thousands of people actually do gather each February 2nd in a small town in Pennsylvania where a dozen men in tuxedos pull a rodent out of a box to see how much longer winter will last based on whether or not it sees it’s shadow.

Perhaps the little ritual itself isn’t that strange but how seriously people in this country take it is downright weird!

In the movie, Bill Murray is forced to live the same day over and over, much like the trading range the markets have been stuck in.  There’s nothing wrong with being in a trade channel if you learn to recognize the tops and bottoms – that’s why it’s so important we watch our breakout levels and don’t overcommit as we near the tops of the range.  As I often say, "if there’s a real market rally, we have all the time in the world to participate.

Asia is back at the top of their trading range with the Hang Seng back at 20,563 and the Nikkei is retesting 17,600, both indices a good 50% ahead of the Dow over the past 3 yearsIn a true global economy, either they are very overvalued or we are very undervalued and I think that if you accept the fact that the economy IS truly global, then it would follow that the US markets are a global bargain.

The Japanese consumers saw their shadow and are spending 2% less as they like to (gasp!) save their money!  I’m not actually quite sure what this "saving" thing is, but we’ll get some researchers on it and get back to you…  This is not bothering the Japanese markets as they see themselves as part of the global economy and the growth of their neighbors is seen as a good thing.  Asian growth is portrayed as some kind of threat to America and traders and analysts alike are stuck in Groundhog day 1946 (world war) or 1966 (cold war) or 1986 (Japan was kicking our ass) as the shadow of a global competitor sends us running back into our holes.

As long as we continue to see Europe and Asia as competitors and not partners, we will be forced to relive the same trading…
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Thrilling Thursday Wrap-Up

Now that’s what I call follow through!

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We ignored a sad 49.3% ISM report (below 50 is actual contraction) as it was 49.9 in November anyway.  "The manufacturing sector failed to grow in January" and "the signals are clear that there is relatively little change taking place in the sector, as the [manufacturing index] has averaged 50.5% for the past four months," said Norbert Ore, who directs the ISM manufacturing survey. "Manufacturing lost momentum in the second half of 2006, and is starting 2007 in a less than robust fashion," Mr. Ore added.

 How can this be good for the economy?  Well the results also show the inventories index is at the lowest level since February 2002.  Declining inventories are running right into a .5% rise in personal income as all these employed people are starting to get raises yet the PCE remains VERY LOW.

Historical comparisons are tough because we had other worries on our mind in February 2002 but what we do know is we had an amazing rally pretty much from March 2003 to today!

The markets were certainly happy about, the Dow tacked on another 50 point gain to another new record with big gains (again) from AA, BA, CAT, DD, HD, PG, UTX and XOM and big bounce backs from INTC, MRK,  & PFE.  We had a very strong finish and even the Nasdaq finally joined the party despite Google acting like a big baby sitting in the corner and dropping 20 points.

It doesn’t get much better than that!

The finish was so strong in most of the indexes that it was a shame they rang…
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Thursday Virtual Portfolio Moves

Posted February 1, 2007 at 9:44 am | Permalink (Edit)

OK – let’s remember right now that our Google spreads from yesterday are up 300+% – not taking that profit now is a major, major risk, as much so as making a brand new trade.

I am taking half off the table now:

  • GOOG Mar $520s out at $9.50
    • taking out $510 callers at $6.
  • GOOG Mar $530s out at 7
    • taking out $520 callers at $3.80

GOOG Mar $480 puts HOLDING, hoping for a bounce but I will take out my putters below $494 and I will get out if it gets back over $495 after that.

Posted February 1, 2007 at 10:18 am | Permalink (Edit)

TIE – the Boeing Buddies are almost as reliable as the Valero rule – I can’t believe it took so long!

  • That being said I am rolling by selling the Jun $25s for $8
  • Buying the Jun $35s for $2 to lock in half my profits.

 Posted February 1, 2007 at 10:32 am | Permalink (Edit)

  • EOG $65 puts at .50 – Risky but fun. 
Posted February 1, 2007 at 10:39 am | Permalink (Edit)
  • Now with a .20 trail stop on my $470 puts
    • currently at $470 – that pays for the calls
  • stopping out of the $530 calls at $1.
Posted February 1, 2007 at 10:44 am | Permalink (Edit)
  • DD on GOOG $530s at $1.40
    • stop on whole position at $1.15
Posted February 1, 2007 at 10:48 am | Permalink (Edit)
  • More MO $90s at .25
    • out at .40 on any pullback.
Posted February 1, 2007 at 10:56 am | Permalink (Edit)
  • Taking the QQQQ $45s for .30 as a fun proxy on a Google recovery (Apple too).
Posted February 1, 2007 at 11:04 am |


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Follow Through Thursday!

 

 

 

Today is a biggie!

Will we get some follow through or will we further define the upper limits of our trading range?  Yesterday was huge but we may only back at the apoapsis (the "highest" point of the orbit and nearing a turn back towards market neutrality).

New members can review the original article on "Stock Market Physics" to get an idea of what I am talking about but let's all keep in mind how difficult it is to break orbit as any of our engines misfiring will force us to abort and take another pass back to the periapsis (the "lowest" part of the orbit).

Asia was ready to blast of this morning as the Hang Seng and the Nikkei both more than made up for yesterday's losses.  The strong US economy is good news for them as we sure don't buy cars and electronics that are made in this country.  Good thing we took out our FXI $107 caller yesterday for $1.70 – anytime you make 50% on a position like that it's good to take it but I think we may bounce all the way back to $106 today.

In fact, it was a pretty good call at 2:22 when I said: "Taking out my FXI $107 caller at $1.70, buying FXI $107s for $1.70 for myself!" as it seemed a pretty obvious way to play the US rally. 

Europe is also in a chipper mood today with 1% gains across the board so it's all up to us to keep the ball rolling today.

We need to fire all engines to make a permanant move to a higher orbit (trading range) otherwise we still risk a very real danger of crashing and burning:


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The Goldilocks Entry

I was speaking to someone last night about setting up a fund and he asked me what the optimum amount was to set up a virtual portfolio and I told him you have to first come up with a strategy and work your way backwards from there.

Let’s take a look at my strategy and what my own logic is for portioning a trade:

It is very important to have realistic expectations going into this.  The returns we have gotten over the past couple of months have been astounding but that is luck – thinking otherwise can get us into big trouble!  The short-term virtual portfolio, which we mainly track, is meant to be the fun one, that is meant to be played with a small percentage of a sensible virtual portfolio.  For larger investments the long-term plays, where we buy leaps and sell puts and calls against them, are the way to go.

Diversification is also very important.  I make a lot of picks because not all picks are right for all people but what is important is that you have a diversified mixture of sectors and no less than 25% (no matter how bullish/bearish the market is) in puts or calls.  Jim Cramer’s game "Am I Diversified" is, I think, his greatest contribution to novice investors.  No more than 20% in a single sector!!!

It’s actually more complicated than that as I will take into account that a DOW call is like an oil put, as they both work off the same underlying factor (the price of oil and gas) so DOW calls do noting to protect my oil puts – they are actually the same bet!  So, if I have enough money for just 10 trades, at least 3 of them will be either puts or calls and no more than 2 of them will be in the same sector.

While it’s fun to imagine you can double your entire virtual portfolio in a month by throwing caution to the wind, you also risk losing it and any action that takes a lifetime’s worth of work (because that’s how long it took you to get the money you now have) and risk it all on a single month is not a good plan!  As I just wrote in my weekend post, Babe Ruth wasn’t great because he hit a lot of home runs, Babe Ruth was great because he batted .341
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Phil's Favorites

Congress is considering privacy legislation - be afraid

 

Congress is considering privacy legislation – be afraid

Courtesy of Jeff Sovern, St. John's University

Supreme Court Justice Louis Brandeis called privacy the “right to be let alone.” Perhaps Congress should give states trying to protect consumer data the same right.

For years, a gridlocked Congress ignored privacy, apart from occasionally scolding companies such as Equifax and Marriott after their major data breaches. In its absence, ...



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Zero Hedge

Key Events This Week: Trade War, EU Elections, Durables, PMIs And Fed Minutes

Courtesy of ZeroHedge

Looking at this week's key events, Deutsche Bank's Craig Nicol writes that while the unpredictable nature of US-China trade developments will likely continue to be the main focus for markets again next week, we also have the European Parliament elections circus to look forward to as well as various survey reports including the flash May PMIs which may offer some insight into the impact of trade escalation on economic data. The FOMC and ECB meeting minutes are also due, along with a heavy calendar of Fed officials speaking.

The European Parliament elections will kick off next Thursday with voting continuing into the weekend across the continent, with results expected on Sunday. With the elections surrounded by internal and external challenges for the EU, members di...



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Kimble Charting Solutions

Will S&P 500 Double Top Derail The Rally?

Courtesy of Chris Kimble.

The rally off the December stock market lows has been strong, to say the least. The S&P 500 rallied 25 percent before hitting and testing the 2018 high.

The old highs proved to be formidable resistance and ushered in some volatility in May… and a 5 percent pullback.

In today’s 2-pack, we look at that resistance level – could that be a double top? We can see similar patterns develop on the S&P 500 Index and its Equal Weight counterpart.

Both indexes are testing short-term Fibonacci retracement levels of the recent decline at point (2).

What takes place here after potential double top highs will be important. Stay tuned...



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Insider Scoop

60 Biggest Movers From Friday

Courtesy of Benzinga.

Gainers
  • Fastly, Inc. (NYSE: FSLY) shares jumped 50 percent to close at $23.99 on Friday. Fastly priced its 11.25 million share IPO at $16 per share.
  • Outlook Therapeutics, Inc. (NASDAQ: OTLK) shares climbed 37.3 percent to close at $2.10 on Friday after the stock rose over 68 percent Thursday following an Oppenheimer initiation at Outperform with a price target of $12.
  • Cray Inc. (NASDAQ: CRAY) shares rose 22.5 percent to close at $36.52 after Hewlett Packard Enterpri...


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Chart School

Weekly Market Recap May 18, 2019

Courtesy of Blain.

China – U.S. trade talk continued to dominate the week.   A heavy selloff Monday was followed by 3 up days, with Friday moderately down.

On Monday, Chinese officials announced retaliatory tariffs against the U.S., hitting $60 billion in annual exports to China with new or expanded duties that could reach 25%.

Then on Wednesday:

The Trump administration plans to delay a decision on instituting new tariffs on car and auto part imports for up to six months, according to media reports.

...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control

 

Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...



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Biotech

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

Reminder: We are available to chat with Members, comments are found below each post.

 

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

A map of DNA with the double helix colored blue, the landmarks in green, and the start points for copying the molecule in red. David Gilbert/Kyle Klein, CC BY-ND

Courtesy of David M. Gilbert, Florida State University

...



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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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